Solana monetary decisions in the spotlight
The Solana world has worked itself into a frenzy over SIMD-0228
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The Solana world has worked itself into a frenzy over SIMD-0228, a proposal to change Solana’s inflation mechanism. It’s either a ploy to destroy Solana’s decentralization or will only fail to pass due to CIA-style sabotage.
I was sure voting on the proposal would be pushed back, but as far as I can tell, voting is still slated to begin in Solana epoch 753 at around 8:30 pm ET.
Helius CEO Mert Mumtaz, Blockworks Research data lead Dan Smith, and yours truly broke the proposal down in this week’s Lightspeed podcast roundup episode. SIMD-0228 proponents say Solana is overpaying for security and market-based mechanisms are more efficient, while detractors say the reduction of issuance rewards could centralize the network’s power.
My editors tell me I need to add analysis to my reporting on the news, however, so I’ll give you my take.
Although network centralization is a concern — MEV tips will contribute proportionately more REV, so Jito will have relatively more power, for instance — what’s more important is that Solana doesn’t lose the scrappy pragmatism that made it so popular in the first place. Issuance is probably too high, and validator revenue should start coming from real value creation in the form of MEV and priority fees. SIMD-0228 should probably pass.
We’ll have more to say on that next week, but I think there’s an even more interesting conversation to be had around SIMD-0096, a move to stop burning half of Solana priority fees that was implemented in February. Since 100% of the fees now go to validators, Solana’s inflation has climbed a bit — from 3.7% to 4.6% on an annualized basis, Blockworks Research analyst Carlos Gonzalez Campo told me on this week’s other Lightspeed podcast episode.
That’s a predictable outcome. But what I found interesting is how unpredictable parts of the response to SIMD-0096 going live has been.
If users and validators were perfectly rational, then users should have started paying fewer priority fees, Campo said. That’s because Solana removed what was essentially a 50% tax on fee revenue, so validators could charge half as much for fees while generating as much revenue as before. But so far, priority fees have stayed constant — perhaps indicating that competition between users isn’t putting downward pressure on priority fees.
On top of this, validator revenue from priority fees was proportionately lower after SIMD-0096 than it had been previously. Users made proportionately more use of MEV tips, and validators couldn’t get them to switch to paying priority fees instead. All of this is a little early to extrapolate absolute trends from, but it’s still interesting to note.
Campo offered an interesting goalpost for SIMD-0096’s success: a reduction in the number of transaction processing units on Solana. TPUs are out of protocol services for transaction inclusion, and their proliferation adds developer complexity and overhead cost. SIMD-0096 — which was first pitched as a way to prevent side deals — could prevent new TPUs from coming to the network.
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